RTI early verdict & other PAYE related news

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RTI early verdict & other PAYE related news

April 16, 2013 2013

 

Real Time Information

It is early days for RTI given that we are only 11 days in to the new tax year but how are things going with this new system for reporting payroll payments and deductions so far ?

If you listen to HMRC, or believe everything you read, things are wonderful. The new Employer Bulletin just published by HMRC proclaims:

"79% of the first employers to try RTI thought it was easy". "The first employers to try RTI felt as confident or more confident than they did using the existing PAYE system". "66% of the first employers to try RTI said the PAYE burden will be less in the future because of RTI"

Feedback from clients so far is maybe not as enthusiastic as this but still, on the whole, more positive than expected. Yes, there have been a number of teething problems in making the first FPS (Full Payment Submission) for some clients but it seems to us that most of the issues have come about through a lack of understanding of what is needed for the FPS or in how the payroll software functions. There have been reports of issues from the HMRC side as well which mostly seem to be caused by delays in acknowledging receipt of the FPS.

Overall verdict has to be that it is too early to consider whether RTI is going to work or not. Maybe once everyone is more in tune with the new software being used we can get a clearer picture of how RTI is going and what needs to be addressed for the longer term.

In the meantime, HMRC has issued some additional guidance to clarify a few points on RTI  National Insurance Number Verification Requests and  Submitting forms P45 and P46 for 2012/13

 

Employee shareholding status

Unsurprisingly, the proposal reaffirmed in the Budget to give some tax incentives to employees receiving "free" shares for giving up some employment rights has been rejected by the House of Lords. We always believed such a scheme was madness as any employee with any sense would steer well clear of such an arrangement. It is clear that the Government is very keen on this scheme, however, and so they may try to push this through again possibly after making a few tweaks to the proposals.

Reporting Benefits and Expenses

HMRC has introduced a new, online, method for employers to report expenses and benefits each year.

Before everyone celebrates the demise of the dreaded P11D this new method of reporting is extremely limited and only applies when an employer is reporting a nil P11D and P11D(b) return or to give HMRC advance notice that all benefits and expenses have been taxed through payroll and therefore no taxable values will ultimately be declared on forms P11D (which strictly still need to be done).

HMRC has suggested that this functionality may be expanded in due course but we won't hold our breath in this completely removing the P11D burden for employers.

Employment Income Manual update

For the first time in a while, HMRC has updated its EIM, the summary of changes is here.

As ever, it is hard to see exactly what has changed, probably just a few words here or there. We haven't reviewed the amended pages in any great detail yet though so we must put that on our "to-do" list for later (oh joy).

 

Any questions or concerns about any of the above just let us know.

 

 

IR35 changes for directors and other office holders - any clearer ?

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IR35 changes for directors and other office holders - any clearer ?

March 27, 2013 2013

As expected, new HMRC guidance was published yesterday around the tightening of IR35 for office holders to come into play on 6 April 2013, subject to the draft legislation being passed in Parliament.

The new guidance is in the form of two new FAQs on HMRC's website which can be found here and here.

Now, most of us know what HMRC are trying to achieve with these changes but for those of you not up to speed with this, basically they are looking to remove any possibility for Office Holders (e.g. Chief Execs, MDs, Finance Directors, Non Executive Directors etc) to avoid PAYE and NI deductions at source on their income from that Office or Directorship through the use of a third party, typically the director's own limited company. This has been possible up to now (although we have always maintained illegally) because IR35 and PAYE legislation has not perhaps been as clear as it could have been on this particular point and HMRC's guidance has been extremely poor and confusing.

Having read HMRC's new guidance in anticipation of the draft legislation being implemented a few times, we are not clear whether HMRC's guidance helps or hinders the understanding of the position from 6 April. Let's face it, the vast majority of non-tax people, including your typical employer, will look first at HMRC guidance before they consider legislation (if at all), and we are not sure that your average employer is going to fully understand the correct position, as HMRC has failed (yet again) to put things into plain English.

Our understanding of the position is that, as has always been the case, normal PAYE rules get first bite at the cherry as Office Holders fall under the same bracket as employees for tax purposes. If the employer fails to apply PAYE to the Office Holder's fees, e.g. because they think that the use of a third party in the middle gets round this, then IR35 rules will kick in to charge PAYE on the fees. This mirrors the current NI position which does not change.

Reading the responses to questions 3 and 4 of HMRC's FAQs, it is not difficult to go round in circles with this. This could just be us, but we suspect not. Why oh why could HMRC not have used this opportunity better to explain it properly and to clarify what this actually means in  practice, i.e. whether it is the end client, or the limited company in the middle, that has responsibility for deducting and paying over the PAYE and NI as this is the question most employers will be asking.

Maybe we're being unfair on HMRC at this stage as legislation has not even been implemented yet ? Maybe, just maybe, better guidance will be added in due course ??? In HMRC's defence, they have clarified that these changes do not apply to employees who are only directors by job title, i.e. they are not listed at Companies House as a legal director, nor does it apply to directors of Personal Service Companies other than where an Office of Employment is involved in another business which is something.

The proof will be in the pudding as they say. Undecided

 

 

2013 Budget - employment taxes overview

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2013 Budget - employment taxes overview

March 20, 2013 2013

Budget speech heard - done ! Budget press releases scanned - done ! "Excitement" faded - absolutely done !

Not quite as underwhelming as previous budgets from an employment tax point of view but nevertheless there were only one or two things which were not expected or known about previously.

Anyways, without any further ado, we provide a brief summary below, in no particular order, of the key points for employers to be aware of from Mr Osborne's speech and, more importantly, the detail that has been published since then by HMRC/ the Treasury.

An increase to tax exempt employee loans to £10k (from £5k) with effect from 6 April 2014.

This measure should help to keep more employee loans off the P11D and out of the tax net. However, we do think that it could also increase the scope for more Director's Loan Accounts to be mismanaged in small owner/director companies which can have significant consequences for the director involved.

A new Employment Allowance from 6 April 2014

This will effectively provide a repayment of the first £2,000 of employer's Class 1 NI each year for every employer in an effort to encourage businesses to employ workers. It is proposed that the repayment will be managed through the normal Real Time Information processes that will start next month. HMRC is to consult with stakeholders later this year over how this new measure will be implemented in practice.

This will surely be welcomed by all employers.

Company car tax band changes from 6 April 2014

To encourage car makers to bring out even more energy efficient cars, two new bandings for company car tax charges will be introduced, a 5% band for cars with less than 50g of CO2 emissions and a 9% band for cars with 51-75g CO2. There will also be a new top rate of 37% introduced at the same time for the biggest gas guzzlers.

Some other minor changes were announced for years following 2015/16 as well as reconfirmation of previously announced banding shifts over the next couple of years.

Company car fuel and company van tax charges increase from 6 April 2014

The fuel calculator figure, on which the appropriate CO2 based percentage is charged to calculate the taxable benefit figure for car fuel, is to be increased in line with inflation. The press release suggested the increase will be confirmed in September this year.

Also, the current £3,000 company van scale charge will be increased by inflation at the same time, along with the van fuel scale charge of £500.

New "Tax-free childcare" scheme with effect from Autumn 2015

This was actually announced the day before the budget but reiterated by the Chancellor today.

Basically the current tax reliefs for employer supported childcare (including childcare vouchers under salary sacrifice) will be phased out and replaced by a new scheme that provides parents with funding of 20% of childcare costs paid to an approved provider up to a maximum of £1,200 per child (i.e. 20% of £6,000).

The finer details have still to be considered as to how this will actually work in practice, particularly around the interaction with existing tax reliefs which will continue to apply for a period to employees currently in receipt of employer supported childcare. The initial proposals only cover the under 5's in the first year, increasing to cover all children under 12 eventually, which will also obviously be a concern to many.

Consultation on offshore employment intermediaries

This follows the review announced in the Autumn 2012 Budget Statement and is looking at preventing employees avoiding UK income tax and NI on UK earnings simply by being paid by an offshore entity.

It is expected that new legislation will follow the consultation for inclusion in Finance Bill 2014.

Loan to participator tax rules strengthened with immediate effect

This is targeted at artificial loan arrangements designed to avoid tax and NI on what is effectively salary through arrangements typically involving LLPs but also involving other third party entities such as trusts.

Proposal to increase level of tax debt recoverable through PAYE coding

A consultation on this will follow later in the year to use the PAYE system better to collect debts from those that have higher earnings.

Employee shareholding status - Tax and NI free threshold with effect from 1 September 2013

Confirmation that employees accepting this new status of worker, i.e. by receiving "free" shares in the business in return for giving up certain (important) employment rights, will be deemed to have paid £2,000 for their shares. In other words, the first £2,000 of value in the shares will be exempt from a tax and NI charge.

We don't expect many (any?) employees to take this up (of their own free will anyway) so this could be a complete red herring for most employers.

RTI penalty changes confirmed with effect from 6 April 2014

This reiterates previous announcements made on the new penalty regime for RTI

Reduction to pension limits from 6 April 2014

As previously announced, the annual allowance will be reduced to £40k (from £50k) and the lifetime allowance reduced to £1.25m (from £1.5m).

 

Any questions/concerns on any of the above, please get in touch.

 

 

PAYE update 15 March 2013 - shares, EBTs, IR35 & RTI

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PAYE update 15 March 2013 - shares, EBTs, IR35 & RTI

March 15, 2013 2013

It's Friday (thank goodness Smile) and us PAYE folk are all busy what with year-end stuff and RTI and whatever so let's just do a brief update on some relevant employment tax issues for now so that we can all get on with what we need to do and enjoy some of the weekend when it comes.

Shares

The latest issue of the Employment-Related Shares & Securities Bulletin was issued by HMRC this week and is worth a read if you offer any sort of share plan to your employees. Click here to get the bulletin.

There's more in this bulletin around the draft legislation published in December and HMRC's position on approving schemes changed in anticipation of this legislation being confirmed. HMRC also clarify a change in their stance on s.431 elections in a CSOP (Company Share Option Plans) as well as further proposed changes on SAYE schemes.

Employee Benefit Trusts

A number of assessments have been issued by HMRC in recent weeks around the use of EBTs.

We suspect this is simply to protect HMRC's position in view of the ongoing Rangers FC EBT case which could rumble on for years so that HMRC are not time barred from collecting the extra tax/NI if they ultimately win the Rangers case.

Anyone in receipt of such an assessment should speak to the EBT provider or the advisers who helped set up the EBT arrangement in the first place. Otherwise give us a call, we would be happy to help.

IR35

Confusion is mounting around the proposed changes to IR35 announced in December and which will come into force on 6 April (subject to anything else to come out of next week's budget) around the inclusion of Directors and other Office Holders.

The confusion centres around how existing legislation around Office Holders will work with new IR35 legislation and whether there will still be conflicting rules and guidance on this when the new rules bed in.

If the Government / HMRC can't even implement what should be a simple change effectively, maybe it is time to scrap IR35 and start again? Maybe the next few weeks will clarify things.....

RTI

C'mon, RTI is such big news just now it would have been wrong to ignore it in this blog. Wouldn't it ??! Undecided

Exactly three weeks to go and the hysteria is mounting. Look at any finance forum or tax magazine just now and the questions and concerns are flooding in and this is representative of client queries we are having as well.

Now that most employers have sorted out their data (said in hope possibly ?!!), most of the questions cropping up are around the day-to-day practicalities of operating payroll in real time. Popular themes include

- The application of RTI for directors who take irregular or small salaries

- The requirement to include expenses paid through payroll whether taxable or not and irrespective of whether covered by a dispensation

- The timing issues around third party information e.g. share plans and expats

- The RTI penalty provisions

As ever, if you have any immediate concerns on RTI give us a call. Don't just ignore it as we will be RTI'ing before we know it.

Have a good weekend all Smile

Tax case ruling to affect travel claims for home based employees?

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Tax case ruling to affect travel claims for home based employees?

February 22, 2013 2013

Self employed taxes (or Schedule D in old parlance) is not our bag and so we tend not to take too much notice of what is going on in that area.

However, one self employed tax case to hit the headlines in the last week or so was of some interest to us particularly as it could have implications on the "better" tax side, i.e. PAYE.

The case we're talking about is Dr Samadian v HMRC which involved the issue of whether the self employed doctor's mileage from his home office to hospital premises qualifies as business mileage for tax purposes. The HMRC won this case (for now anyway) on the basis that home could not be considered the starting point for business travel in relation to habitual travel to the main place of work.

Now, the question of whether home can be regarded as a Permanent Workplace under the PAYE travel rules has long been an issue and it has always been notoriously difficult to get HMRC to agree that home to any other Permanent Workplace can be classed as business travel. Does the Samadian case have any impact and make this even trickier than ever for employers who have home based workers ?

The starting point in considering whether this may happen is to think about legislation. ITEPA (Income Tax (Earnings & Pensions) Act) 2003 governs the rules for employee expense payments and this legislation makes it clear that it only applies to employed workers subject to PAYE (which includes directors and office holders for completeness). Self employed tax rules come under some other legislation, the name of which doesn't exactly trip off our tongue as automatically as ITEPA Embarassed. So you would have to say that there is absolutely no reason why a tax ruling for one part of tax law should apply to a completely separate part of the law.

However, as we should all know by now, tax isn't that straight forward. It could well be that the principles applied by the Tax Tribunal in denying relief on Dr Samadian's travel could be transferred over and used in deciding contentious cases involving employees. Based on our quick scan of the Samadian judgement, the main reason for relief being denied is based on the fact that travel to each hospital was not carrying on the activities of the Doctor's business but putting him in a position to do his work. In other words, failing the "wholly and exclusively" test for tax relief. The key arguments in any employment tax case are very similar, with the added complexities of having to consider the Temporary Workplace and Permanent Workplace rules and so the Samadian judgement could well make life harder for those of us on the PAYE side in the future if the tribunal judges see some common ground between the two.

It is fair to conclude, however, that things shouldn't change that much in reality for employers or employees because of this case. Claims for tax relief on an employee's travel from home to another workplace have always been resisted by HMRC and that will continue to happen going forward, not because of the Samadian case but because HMRC already has a lot of case law and precedent ammunition in employment cases to fight their corner. The Samadian case may be rolled out if it suits HMRC and adds to their argument but as far as we are concerned it should be more or less business as usual on this side of the fence.

Best advice we can give to any employer out there with home based workers is to take proactive advice around this whole area. There is often things that can be done, or arrangements structured in certain ways, to avoid a Samadian situation. You know where we are if you want to chat or need assistance.......

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